Comstock Resources (CRK) Update - Jan 3

[dan_s]

I took a hard look at my forecast/valuation model for Comstock on Sunday and I extended it through 2022. I've increased my valuation by $0.50 to $8.50.

Comstock has given production guidance for 2021 of 1,325,000 to 1,425,000 mcfepd. I'm using the midpoint, but this management team has a habit of "under-promising and over-delivering".

TipRanks: "In the last 3 months, 4 ranked analysts set 12-month price targets for CRK. The average price target among the analysts is $8.05." The most recent analysts' report is from Stifel on 12-18-2020 that rates it a BUY with a price target of $9.20. Truist Financial downgraded it to a HOLD on 12-15-2020, but did not provide a price target. I think the downgrade was just because of the pullback in gas prices.

Comstock has approximately $2.00 operating cash flow per share locked in for 2020 and at the midpoint of their production guidance for 2021 I forecast them generating ~$700 million of cash flow from operations in 2021 and ~$150 million of FCF. My $2.95 operating CFPS forecast for 2021 compares to First Call's operating CFPS forecast of $2.69.

IMO the stock should be trading for at least 3X operating CFPS. My updated valuation is $8.50.

My valuation is based on realized gas prices (net of settlements on hedges) of $2.60/mcf for 2021 and 2022.

The balance sheet is in decent shape and they have plenty of liquidity. No near-term debt issues that I can find. No reason the stock should be trading below book-value per share.

There is significant upside for us on CRK if the "gassers" come back in favor because that should draw multiple expansion for the group.